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Haste makes waste for value added services

Over the past three years, the mobile industry has seen a dramatic shake-up at every level, from phones to services. Apple has launched the iPhone, iPad and AppStore, Google introduced Android, and HTC has transformed from outsourcer to pioneering device maker.

This has caused a major change in consumer perception. The birth of the app has driven unprecedented demand for mobile services that allow users to customise their handsets. These apps mostly bypass operator channels.

Operators have largely been powerless to stop this new direct interaction between developers and users via app stores, which cannibalises their new sources of revenue. It places operators in grave danger of losing a grip on their customer’s loyalty and relationship.

Vodafone is one of the operators fighting back. Last year, it launched Vodafone 360, a mobile service which it characterised as “a new internet service for your mobile, PC and Mac”. It amalgamated a subscriber’s contacts across multiple systems, including their phone, Facebook, Google and IM, in a central address book, to make it easier to communicate with friends and family from a mobile. In addition, users were offered free back-up and sync services and the ability to send SMSs from a computer.

Signing up for a 360 account was free, and the service was not limited to Vodafone subscribers. Yet, Vodafone’s subscriber forum and the wider mobile community is rife with criticism of the service. Vodafone is now withdrawing exclusively manufactured 360 handsets to focus its attention on the 360 software platform, which highlights how difficult it is to launch and grow a successful mobile service.

What went wrong?

Despite the enormous money and time invested by Vodafone, the 360 service was initially available on a few high-end smartphones that were not attractive enough to compel users to switch from other phones. This caused a lack of 360 users which inhibited the ability to interact with other 360 users. This situation was not helped by numerous reports of technical issues with the service, which frustrated users who gave up after trying. In this regard, Vodafone was not alone, as Apple and Nokia also suffered high profile glitches with the launches of similar mobile cloud sync services.

The poor implementation of a mobile service comes with high costs; not the least financial. The greater risk is to a company’s reputation, brand and customer loyalty. For example, O2 failed to capture the imagination of the consumer when it introduced the i-mode mobile internet platfrom in the UK. O2 reportedly invested over £10m getting the service off the ground. But it had a limited number of handsets that supported the service and uptake was achingly slow (reportedly only 260,000 active users in Britain). O2 also received a subscriber backlash when it ended free internet browsing over the service. It was no surprise when less than two years after its launch, O2 announced it would end its support. The exclusive deal it had with Apple for the iPhone has been key to revitalising its reputation and attracting new customers.

This is a situation similar to the one mobile and fixed line operators faced ten years ago, when many thought they could design and build their own customer management and billing systems. Experience proved that purchasing a commercial system with the ancillary training, support, maintenance and continuous development was generally the wiser decision.

“Stick to the knitting” is one way of describing this philosophy. Operators are adept at network management and need to focus on their core product offerings; they’re typically not leading edge software developers and marketers. Partnering with a specialist with the expertise, knowledge and extensive base of engineers is a more practical, cost-effective, lower risk and faster way to create new consumer-centric services.

To win the battle with consumers, mobile operators should accept that they need to exploit the expertise of external specialists to bring new services to subscribers. These specialist companies are nimble and fast on their feet, and are often better equipped to respond to market changes. They can develop, manage and maintain software platforms and offer better support for a greater number of different types of devices.

Another important lesson relates to device compatibility. Vodafone is now making 360 available on Android devices. Time will tell if this approach will succeed. A major trend is the rise of open source software in mobile, such as Android for devices. Device makers, software developers and mobile operators are quickly seeing the benefits of open source as a means to ensure broad device compatibility. If 360 had been available on more phones initially, it may well be in a very different position today.

By exploiting third party experts and mobile open source software, operators are free to concentrate on developing their core product offerings, invest in improving customer relationships and brand loyalty, and having a better handle on subscriber data management. Secure in the knowledge that when launching new software services, they will work efficiently, in the manner intended and that future developments will be widely adopted.

Hal Steger is vice president of marketing at open source device management firm Funambol

2 comments

Hal, While I will agree with your comment about sticking with their knitting, I believe you have undersold the capability of carriers, in key areas. You are omitting the fact that these key competence are under threat from the external app market, like Android. Carriers have several core capabilities. Network capability is a give in, but you are missing the primary two things 1) Billing 2) Marketing. You say they are not marketers. I would say that mobile phone companies are amongst the most adept marketers there are and ever have been. Where did it all go wrong? They believed too many external influences who were suggesting they change their model. The statement “mobile must become more like the internet” is the harbinger of death to the modern mobile carrier. Luckily there are good partners who are now encouraging the operators to get back to you knitting like this – “Work with close technology partners, like you used to. Be wary of false friends, like Apple and Google. Get back to you knitting, by making sure you manage marketing and billing. Don’t give stuff away for free, it will kill you.” Yes 360 is a massive screw up. This is agreed by all, but open source software, which circumvents the billing system is not an answer.

Hi RGB, a minor point of clarification regarding “open source software, which circumvents the billing system is not an answer.” The market trend that is circumventing billing systems is as you noted the meteoric popularity of app and media stores such iTunes and Android Market, which if and of themselves are not related to open source software, they may more closely be aligned with your ‘false friends’ assertion. Open source in the context of mobile is really more about allowing carriers to address more users (in this case, via more devices and the internet cloud) and is not related to circumventing billing systems. Hope this makes sense.

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